Management fees greater than return

blackandwhitebunny

I've recently started looking at my husband's pension situation. I'm with the TPS so my own is very different. I've recently looked at a pension fund he has with Old Mutual through a company called pensionlite, its an old pension from a previous employer and there are no payments being made to it, its worth around £50000. The latest six month review shows the management fees as being £360 for the six months and the income from the investments as being around £40 which means we are paying them £320 every six months and the fund is dipping in value.
This seems crazy as I could get a better return if I just put the money in our savings account.
So I'm hoping someone can give me advice:
I assume that he would lose 25% if he drew it out before pension age?
What's the earliest age he can draw it out? (currently 46)
Would he be better off transferring this to his current work's pension pot?
One option could be if we could draw it out it would with some of our savings pay off our mortgage and save us 10years worth of interest at ridiculous NRAM rates of 4.58%
Thank you for any help.

Uncle_Bob

Hi,

What type of fund(s) is the pension invested in?

Active funds (where the fund managers make investment decisions rather than following an index) are typically more expensive than passive funds. Your husband's charges seem to be 1.44% (£720pa / £50,000 fund) which suggests an active fund of some description.

dunstonh

The latest six month review shows the management fees as being £360 for the six months and the income from the investments as being around £40 which means we are paying them £320 every six months and the fund is dipping in value.

An economic cycle is in excess of 10 years. So, picking 6 months is never going to be realistic. Plus, that 6 month period saw the markets fall.

This seems crazy as I could get a better return if I just put the money in our savings account.

No you couldnt. Again, picking a short term period at random is never going to give you the real story. You are ignoring the 15% gain period prior to that for example.

One option could be if we could draw it out it would with some of our savings pay off our mortgage and save us 10years worth of interest at ridiculous NRAM rates of 4.58%

Yet the bog standard balanced managed funds on pensions return around 5.5% a year as a long term average.

Do not make bad decisions based on low knowledge and understanding.

tacpot12

Normally age 55 is the earliest he can draw the money out. If he draws it out before age 55, he will lose 55% of it in tax unless he has a health condition that Old Mutual accept as being sufficiently bad to warrant early payment of his pension.

Will his current work pension allow him to transfer in? Many don't.

If transfers in are allowed, whether this is a good idea will depend on the return & charges of the new scheme vs. the Old Mutual pension. You have access to both the details of the return and charges for both schemes so should be ale to make a decision. Bear in mind that the investments may also carry different risks. Having ones pensions invested in different assets and with different providers is a good strategy for reducing risk.

I would suggest you monitor the situation for a little longer before taking any decisions. Make sure your husband is happy to make any changes.

LHW99

income from the investments as being around £40

But what is the capital increase? Return from investments generally is a mix of income and capital, and if it was set up to grow the fund then the income part could be secondary.
Also, don't look at that over 6 months either - 5 or 10 years is better.

blackandwhitebunny

Thank you for your replies

What type of fund(s) is the pension invested in?

Active funds (where the fund managers make investment decisions rather than following an index) are typically more expensive than passive funds. Your husband's charges seem to be 1.44% (£720pa / £50,000 fund) which suggests an active fund of some description.[/QUOTE]

It looks like an active fund, but I'll have to get him to contact them and check.

dunstonh wrote: »

An economic cycle is in excess of 10 years. So, picking 6 months is never going to be realistic. Plus, that 6 month period saw the markets fall.


No you couldnt. Again, picking a short term period at random is never going to give you the real story. You are ignoring the 15% gain period prior to that for example.



Yet the bog standard balanced managed funds on pensions return around 5.5% a year as a long term average.

Do not make bad decisions based on low knowledge and understanding.

We're not about to make rash decisions, that's why I'm asking for advice. I guess I need to find out how much was originally in the fund as its been there for more than ten years and see what its done overall.

tacpot12 wrote: »

Normally age 55 is the earliest he can draw the money out. If he draws it out before age 55, he will lose 55% of it in tax unless he has a health condition that Old Mutual accept as being sufficiently bad to warrant early payment of his pension.

Will his current work pension allow him to transfer in? Many don't.

If transfers in are allowed, whether this is a good idea will depend on the return & charges of the new scheme vs. the Old Mutual pension. You have access to both the details of the return and charges for both schemes so should be ale to make a decision. Bear in mind that the investments may also carry different risks. Having ones pensions invested in different assets and with different providers is a good strategy for reducing risk.

I would suggest you monitor the situation for a little longer before taking any decisions. Make sure your husband is happy to make any changes.

he's asked the question about transferring to his workplace fund and is waiting to find out. Like many people he has a few pots dotted about but the others seem to be growing so we'll just leave them. Its just this one that seems to be costing more to manage than its making.

A couple more questions:
This fund is meant to be zero risk, what difference does it make? The original intention was to make it zero risk so it would just carry on (we assuming) growing from interest.
When you reach retirement age and can draw out 25% tax free does that mean 25% from each pot or 25% in total? (so you could take the whole value and then draw it all out of one pot)
Thank you

Terron

blackandwhitebunny wrote: »

This fund is meant to be zero risk, what difference does it make? The original intention was to make it zero risk so it would just carry on (we assuming) growing from interest.

Who said it was supposed to be zero risk. Zero risk is impossible, and very low risk tends to mean very low growth so often isn't the best choice.

dunstonh

This fund is meant to be zero risk, what difference does it make?

There is no option out there that is zero risk. It does not exist and would be impossible to exist.

The more you reduce investment risk, the more you increase inflation risk and shortfall risk.

Can you name this so-called zero risk fund?

When you reach retirement age and can draw out 25% tax free does that mean 25% from each pot or 25% in total? (so you could take the whole value and then draw it all out of one pot)

Theoretically, the rules allow either method. However, commercially, very few options allow it. So, its normally 25% from each. Also, you dont need to draw the 25% at the start. I find most of the ones I do take it phased.

We're not about to make rash decisions, that's why I'm asking for advice. I guess I need to find out how much was originally in the fund as its been there for more than ten years and see what its done overall.

That is good but your assumptions, as hopefully you can now see, are wrong.

Investments zig zag in value. They have periods of gains, periods of losses and periods where they remain the same. This is on a daily basis. However, a complete economic cycle is something like 10-15 years. So, if you look at any period of 6 months you are just getting a snapshot of a very small period. As it happens the last 6 months saw investments fall in value a little. This would have happened across all the pensions (caveat to old With Profit funds where smoothing and lower transparency may hide that).

A global tracker fund valued at £10,000 on the 17th November 2017 would have been around £10,390 in January 18 but £9450 in April 18 and now £10,250 today.

Global trackers are quite high risk as they are 100% equity. However, they will probably make more over the long term than 60% equity fund. They will just zig zag more in the interim periods. If you cant handle the zig zag effect you can reduce the volatility of the zig zags by reducing stockmarket content. However, it will also likely reduce the returns over the long term. So, you have this balance between returns and volatility and then timescale. If he was retiring in the next 5 years you probably wouldnt want to be that high up the risk scale. However, if he is retiring 15-20 years time then you want volatility. You want periods of loss as the money you are paying in buys the investments cheaper. You want those sharper losses/gains.

However, all that needs to be reduced if you cannot handle the balance falling by a very small amount every now and then.

zagfles

Transferring to the works pension might be an idea, as charges are usually quite low (check these) and they usually have a good variety of "lifestyle" choices if you don't want to make investment decisions yourself. But you'd need to check the rules for the workplace pension, ie whether they accept transfers (most will) and any restrictions on what you can do with it (eg will he be allowed to access before he retires/leaves the company).

1drakey1

I have just decided to cash in my pension with Pensionlite and they have refused to give it to me.Be warned.

AnotherJoe

How old are you 1drakey1? Under 55 I presume ?